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Ever since the economic relationship between China and Taiwan began to explode in the early 1990s, U.S. policymakers have been concerned that China could exploit these economic ties to coerce Taiwan into making political concessions concerning the two entities’ political relationship. Taiwan and China now rely on each other for important contributions to their respective economies, and each would suffer great economic pain and dislocation in the event of a major disruption in that relationship, but Taiwan is far more dependent upon mainland China than mainland China is dependent upon Taiwan. This monograph analyzes the political impact of that rapidly growing economic relationship and evaluates the prospects for Beijing to exploit it by employing economic coercion against Taiwan. The author evaluates Taiwan’s potential economic vulnerability to efforts by the Chinese to cut off or disrupt key aspects of the cross-strait relationship and analyzes the challenges that China has faced in its efforts to convert this raw, potential economic influence into effective political leverage. The author argues that, while Taiwan’s growing dependence is a source of genuine concern, China has encountered serious problems in exploiting the economic weapon to coerce Taiwan. The monograph closes by exploring the potential impact of cross-strait economic diplomacy on U.S. policy interests in the Taiwan Strait.

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The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted in the RAND National Defense Research Institute, a federally funded research and development center sponsored by the OSD, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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